Savings Accounts

Investment Dictionary -> Savings Accounts

Saving accounts are accounts that are offered and maintained by commercial banks and allow you to deposit a certain amount of money and receive interest on it. The main difference between savings accounts and checking accounts (the other most popular type of accounts) is that money on the former type is not readily accessible all the time – thus, for example, you can withdraw a sum from your savings account only when you visit a branch of your bank. Taking money from a checking account, on the other hand, is as easy as writing a check or going to an ATM and can be carried out 24/7.

Another important difference between the two types is that, as a rule, savings accounts offer bigger return on deposited assets. The more money one deposits in a savings account, the higher interest he gets paid. Therefore, if you have extra money that you do not need at present and want to make some profit from it, you are well-advised to place it on a savings rather than checking account.

With high yield savings accounts, clients enjoy a bigger annual percentage yield. This savings account is offered to customers who agree to deposit large initial deposit, maintain a high balance, and limit the amount of transactions in and out of the savings account. Typically, banks will offer such accounts to valued customers.

If you don't have a savings account yet, but would like to open one, there are a few things to consider. First, check the interest rates which the banks offer - it may seem surprising but nowadays, online banks offer better conditions than "normal" brick-and-mortar banks. Inquire if the interest rate depends on the amount of the account assets and the period for which they are deposited. Second, inform yourself about the withdrawal requirements of the banks. A bank, for example, may impose a minimum period before you are permitted to withdraw money from your account. Other banks, on the contrary, will facilitate the access to your assets by allowing you to withdraw money with checks. As a whole, the withdrawal policies of banks, although similar, differ in the details and require, therefore, extensive research and close attention. Third, choose a bank which will not lose the savings of its customers but will pay them back in full should it be declared insolvent. In the United States, for example, such secure banks are the ones which have taken out insurance with the Federal Deposit Insurance Corporation.

Before selecting a bank to safe-keep your savings, examine its current financial status, read expert opinions, and check the feedback from its clients. After all, it is your hard-earned money which is at stake. A considerable part of your financial life revolves around relationships with banks, and it is worth doing some research.

When you sign the savings account contract, you will receive a passbook from the bank which you will have to bring with you any time when you want to withdraw money. This passbook will have a list of all transactions and accumulated interest on the account.

Apart from bank savings accounts, you may also consider money market funds, certificates of deposit, and money market accounts. Money market funds are similar to banks savings accounts, but their holders get better return. Money is typically invested in short-term bonds which carry less risk. With certificates of deposit, the bank holds the customer’s money for a specified period of time. This period may be between 1 and 6 months or 1 and 5 years. Unlike banking savings accounts, customers cannot withdraw any money at a time of their convenience, or they are subject to withdrawal fees. Money market accounts are normally offered by banking institutions. Holders get higher interest rate in comparison to regular savings accounts.

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